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The most commonly asked question of financial advisors is “why didn’t my portfolio perform as well as the S&P 500?” Interestingly, clients don’t seem to ask this question when the S&P 500 falls 10% and their portfolio drops by 5%... I will take a couple of paragraphs to address the current state of the market, viewed through the eyes of the S&P 500 and a typical investor.
First, let’s examine the history of the S&P 500 (S&P). The index as we know it began in 1957, when Standard and Poor’s expanded its well-known list to 500 companies. However, the S&P goes back to 1926 when it was known as the “Composite Index,” and it was made up of 90 companies. The S&P is a weighted index, based on market capitalization (Majestic’s advisors can explain this if you would like). As an investor, the index is used in different ways. It can be used as a benchmark – how did your portfolio compare to the overall S&P? It can be used to “buy” the market – buy shares of an S&P ETF or mutual fund. Or it can be used to identify stocks that may fit an investor’s portfolio based on the stock’s weighting in the index. Over the course of years, the companies that make up the index have changed – in some cases substantially. Only seven of the top 25 companies in the S&P in 2001 remain in the index (let alone in the top 25). Many of the companies that are no longer a part of the S&P are well known companies that have experienced a change in consumer demand for their goods/services. Due to the change in world economics, only one company that was in the top 10 in 2001 still remains in the top 10. Microsoft is still the number 2 weighted company in the index. This brings us to 2022 and 2023. In January of 2022, the major indices (S&P 500, Dow Jones, NASDAQ) all started dropping. Over the course of the first quarter of the year, all three entered correction territory and remained in Bear Market territory until early 2023. The primary reason for this was the drop in the big names of the indices. Apple, Google, Amazon, Microsoft, Meta (Facebook) and others dropped over 30% each. Owning the S&P through either a mutual fund or an ETF, means a drop point by point without owning any of the individual companies that were falling. This scenario can create heartburn every time the news reports a drop in the S&P. In 2023, this trend reversed. As of the writing of this blog (11/6/2023), the S&P has gained 13.71% (which means it is still below 2021 levels). This is above the average annual return of the index. However, 12 companies have made up 34% of this gain. The Information Technology, Communication Services, and Consumer Discretionary sectors are all up over 33%, more than double the overall index. The stocks driving the S&P are: Nvidia, Meta Platforms, Tesla, Royal Caribbean, Carnival, General Electric, Palo Alto Networks, PulteGroup, Airbnb, West Pharmaceutical Services, Advanced Micro Devices, and Booking Holdings. Do you recognize all of these companies? SO, when a 2023 investor asks why they haven’t had the S&P 500 return, the answer is simple – do they own these 12 companies? It’s not a recommendation. The choice is whether to own individual stocks – and accept the risk that they could fall substantially – or own an index and potentially limit exposure to both the losses and the gains of these same stocks. The bottom line to investing is to make sure that your goals and time horizon align with your portfolio. If you want simple investing and you don’t mind your portfolio just moving with an index, an ETF that matches the index might be the right investment. Personalization of a portfolio may increase both risk and return – which may be what the client wants. Written by Sean Budlong, CFP®, AAMS, Chief Executive Officer, Majestic Financial, Financial Consultant, RJFS Disclosures: *Any opinions are those of Sean Budlong and not necessarily those of RJFS or Raymond James. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. *The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. *The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. *Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Benchmarks help us gauge our progress, performance, and results. As humans we compare ourselves to others more often than we think, consciously and subconsciously. Sometimes this can be a healthy behavior, while other times it can be a detriment. Kids racing each other at a park, constant sibling rivalries (usually about the most ridiculous things), competition for a promotion at work, an inner motivation to improve oneself by improving one’s fitness from one point of time to the next, reading more books than last year, or earning more money from one year to the next; all involve comparing one result to another over a given timeframe. Comparison and competition go hand in hand. It is paramount to compare similar things to each other though. At one time, it would be silly to gauge my performance by me beating my son in a race. I’m older, been doing it for longer, have longer legs and should be faster and stronger, but he just beat me recently…and I’m still trying to cope with it. Benchmarks need to be evaluated for their accuracy and this benchmark recently changed. The comparison should be apples to apples.
This leads me to something that should be addressed, especially when it comes to investing and specifically this year. After a tough last year where it seemed all areas of the market experienced losses, we are experiencing a rebound this year. As I am typing this, the “market” (Standard and Poor’s 500 Index) is up 14.54% (7/10/2023). Should we be overly excited with this increase, be cautiously optimistic since the Nasdaq Composite is up 31.12% for the year or totally dismiss it since the Dow Jones Industrial Average is only up 2.21% for the year? When people refer to the “market”, they can be referring to any of these indexes (or indices, both are acceptable versions of the plural form of index, by the way), or benchmarks. These are all ways to gauge how the “market” is doing, but they are not all the same and far from a good apples to apples comparison. There are a lot of other indexes that are used as benchmarks in the investing industry. For instance, the Bloomberg US Aggregate Bond Index would be a good index to use to know how the bond market is doing, but a poor benchmark for international markets. The MSCI EAFE or FTSE 100 would be better alternatives for this. A closer comparison would be the Russell 2000 compared to the Wilshire 5000, but still not apples to apples, since the Russell 2000 is for small companies and is more volatile, while the Wilshire is meant to be a broad-based representation of the domestic investment market. While this can be confusing, it is important to know what you may be comparing your investable life savings to and ultimately could be using to make very important decisions. With all the indexes to pick from, the most widely used are the Dow, S&P 500, and the Nasdaq. All are used to gauge the equity market, or stock. But as noted before, not the same. Besides the vast difference in returns between the three this year, there are other differences. The wide discrepancies of returns are due to what they are representing. The Nasdaq is heavily made up of Technology stocks. Its high return makes sense since the Technology sector of the market is up 40.7% this year according to Franklin Templeton. While investors enjoy those returns in a good year, the same sector was down over 30% last year. The middle ground index, S&P 500, is made up of a more diversified lineup of companies but is Capitalization Weighted (so is the Nasdaq), or Market Cap weighted. Essentially, what this means is that bigger, more valuable companies are given a bigger percentage of the Index. This is calculated by multiplying the outstanding shares of the company by the price of one share. So, today the S&P 500 is up over 14% but the weighting is overweight to Technology and bigger, more valuable companies like Apple, Alphabet (formerly known as Google), Microsoft, and Amazon. These companies are up between 32-50% for the year and make up a large part of the index, skewing the average. These companies were also down 30-50% last year creating quite a rollercoaster for the past two years and a feast or famine situation. Compare this to the steady Dow Jones and its low return for the year, which is only 30 companies (which many people think doesn’t reasonably represent the vast market). This index is Price Weighted, which is calculated by adding all share prices and dividing that by the amount of companies. This difference, and that it also excludes many stocks that are in the S&P, especially Amazon and Alphabet, accounts for the discrepancy of returns. Comparing a portfolio to any of these indexes is not a bad thing but should be done in the right context. Rarely an investor’s portfolio is identical to one of these indexes. Their tolerance to risk is probably not as high to weather the down years as well, creating a risk of selling at the most inopportune time. A diversified portfolio tailored to the investor and their goals is a time-tested approach, and when partnered with accurate expectations for fluctuations, it is an excellent way to achieve one’s goals for themselves, loved ones, and causes they hold dear. It’s easy to see a person’s money and investments as numbers and percentages, but it is important to remember to see it as resources to accomplish meaningful things and hopefully create cherished memories. Written by Leon Bennett, CFP®, Chief Operating Officer, Majestic Financial, Financial Consultant, RJFS Disclosures: *Any opinions are those of Leon Bennett and not necessarily those of RJFS or Raymond James. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. *Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification mark CFP® in the United States, which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements. *The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. *The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. *The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. *The Wilshire 5000 Index is an unmanaged index of 5000 stocks traded on NASDAQ and the exchanges. *The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. *Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. *The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. *The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. This is not just a proverb, but a statement that Brandon, Leon, and I have heard from clients and prospective clients our entire career. Most of the time it’s used to explain to us that the person feels the need to have multiple investment accounts at different offices and even banks. Let’s examine this piece of advice to see whether it really is applicable to a portfolio and/or money manager.
First, let’s agree that applying only to Harvard after graduating from high school may create disappointment. Let’s also agree that setting your sights on the CEO corner office right after your college graduation may be a little premature. Both of these are examples of situation where exploring multiple options will help you get a step up in life. Second, let’s agree that there is no rule that you must date many people before finding your true love. Many clients have been dating their middle or high school sweethearts for 50 years – and never dated anyone else. My own sister has been married for 33 years to the first man she ever dated. Yet for every person who finds love at first sight, there’s someone who found love in their second or third marriage. Finally, many people consider themselves to be well rounded individuals because they have many skills, interests, hobbies, and friendships. They say they enjoy running and reading (hopefully not at the same time), watching the kids play soccer, going shopping with friends, wine tasting and travel. All of this sounds like fun to me too (with the exception of the wine and shopping). However, if most people were being honest and they had three hours where they could choose just one activity, it would be an easy choice. This is because while most people do have a variety of interests, they also have a preferred interest. Why am I pontificating on this topic? If we can accept that sometimes it’s good to put eggs in different baskets and sometimes it’s better to keep them together, why do so many people believe that it’s a hard and fast rule to keep them separate? And what does this mean in the investment world? I believe the reason for this confusion is based on a misunderstanding of what it means to have all your eggs (investments) in one basket (financial firm). Many people believe that hiring multiple financial advisors mean they have more asset diversification. Or, on the other side of the coin, that having their assets with only one firm means that they have all their money exposed to the exact same risk. Often this is simply not true. This is not because all other financial offices pale in comparison to Majestic Financial. It’s just a fact that if the advisors or the firms that they work for have the same investment philosophy or line up, you may have multiple accounts with virtually the same risks and holdings. I have personally seen many portfolios where hundreds of thousands of dollars’ worth of investments were invested in mutual funds where 8 or 9 of the top 10 holdings were the same – often Apple, Microsoft, Google, and Amazon. And often the portfolio held these four companies as individual stocks too. So while your eggs are in different baskets, they are still identical. Another problem with placing eggs all over the county is that while your eating habits may change (kids may make you eat more daily than you used to) you are now spending time running around grabbing eggs. Of course, I’m talking about how your financial needs may change and you may need more or less risk to achieve your financial goals. But if only 3 out of 5 advisors are aware of this, what do you expect the other 2 to do to help you – and remember that you are paying all 5 of them regardless of what value they bring to you. At Majestic Financial, we want to be a very important part of a small group of people’s lives. We want you to have different eggs (style of accounts, individual investments, alternative investments) but have all of the chickens on the same farm. With three different advisors and a great staff, we can work together to help you achieve your goals while enabling you to evaluate the entirety of your assets in one statement. Please let us know what we can do to make you comfortable partnering with Majestic Financial. We’ll make sure the baskets are the right ones for you. Written by Sean Budlong, CFP®, AAMS, Chief Executive Officer, Majestic Financial, Financial Consultant, RJFS *Any opinions are those of Sean Budlong and not necessarily those of RJFS or Raymond James. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Yes, the word is fartlek. The term is unique and an attention grabber. It is also very useful, not only in its intended purpose as a form of exercise, but it’s structure and purpose can be implemented into everyday life and, of course, financial planning. Fartlek is a Swedish word meaning “speed play”. It is used by many sports teams for conditioning and to spice up running regimens. Instead of going on a run or jog, a fartlek consists of running with different speeds and is extremely flexible in its format. A sample fartlek track workout consists of sprint the straight away, jog the corner, do a set of pushups, sprint the straight away, jog the corner, do an ab workout, then rinse and repeat. It can also be added to the usual run around the neighborhood at a consistent speed then at the end sprint for a block, walk a block, sprint a block, and so forth. People do this for time or distance. The idea is the variation of speed and intensity. While enjoying a fartlek recently, I found myself thinking about my day and the “to dos” that needed to be accomplished. It hit me that fartleks aren’t just a more enjoyable way of running but could be implemented as a way of life. I know that may seem biased and a little much (especially if you just heard of fartleks two minutes ago based on your reading speed), but it does hold some truth. Throughout life, no matter what stage, there are things that need to be completed. Some of these are enjoyable and some are not but they all need to be checked off the “to do” list. Things that just need to get done and don’t have to be perfect, can be sprinted through. Things that are enjoyable, purposeful, and worthwhile, please allow yourself some grace, walk through those times, and soak them in, because you may not get them back. Life is rarely consistent. Everyone is different with unique situations; financially, professionally, family and otherwise, and things change. Easily jogging through life doesn’t exist. There are speed bumps and hurdles. Some are easier to maneuver than others but having a plan when to sprint, run or walk can be paramount, not only for a workout but for anything that is important in your life that is worth dreaming about and worthy of your best effort.
When developing a financial plan, there is a process that we follow. We meet with people and have robust discussions about their goals, wants, and wishes for not only them, but their loved ones, causes they are passionate about and things that are overall important to them. After knowing this, we talk about what they currently own to help them reach their goals, assets, and what may need to be accumulated and exactly how to go about doing this to turn their dreams into reality. We lay a roadmap out to help achieve their dreams. Some action items can be completed quickly and implemented immediately, while others take years. Life isn’t a jog at a constant speed. Sometimes we sprint though sections and sometimes we must catch our breath and walk for a bit. The important part is to always move forward, no matter what the distractions, news stories, market swings or speed bumps are. Please let us know when we can help you or your loved ones develop a plan to achieve what is important or to mitigate a risk (that you may or may not know about) that could derail an already established plan. Written by Leon Bennett, Chief Operating Officer, Majestic Financial, Financial Consultant, RJFS *Any opinions are those of Leon Bennett and not necessarily those of RJFS or Raymond James. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Have you ever checked the 10-day forecast and saw it looked like gorgeous weather, so you planned a bunch of outdoor events excited to have beautiful temperatures and sunny skies? Then in actuality, it happened to rain 7 out of those 10 days including severe thunderstorms on one which derailed all your plans. Welcome to the concept of volatility. Sometimes even with the best laid plans, you can't predict what will actually happen with 100% certainty. The weather is one of those things that we like to try to think is set in stone when we see the 10-day forecast, but as we have all experienced before, especially if you live in Michigan, it can change on a dime, unexpectedly and for unforeseen reasons. With Michigan weather, most of us know to prepare for some unexpected changes in the forecast. That's why we set up a tent for the graduation party, bring a poncho to the football game, and make sure there is indoor seating at the reception. These are ways we can mitigate the potential damage or disappointment that comes with volatile weather.
Just like the weather, the market can also have periods of volatility, and it does, we just aren’t as used to them. As steady as its growth has been for the past decade, we are now experiencing extended volatility this year. As of May 20, 2022, the average annual return for the S&P 500 for the past 10 years is 11.65%. As of that same date, the S&P 500 is down almost 20% at 18.14% for the year. We haven’t seen that very much and human psychology is built to think in a perspective of a, “what have you done for me lately”, type of mentality. Sometimes investors forget that only a little over two years ago, when the whole world shut down in March of 2020, the market went down 34% in a one-month period. People remember this, but not as much as when it was happening because the sting to that memory was overshadowed by the all-time highs the S&P 500 recorded since then. But now the all-time highs are replaced with a current loss, and no one will be able to miss knowing about it due to the ongoing anxiety, fear and overall negativity that we are bombarded with on a daily basis from multiple sources. In the Psychology world, this can be described by a term called “Negativity Bias”. It’s the effect of negative comments, results, events and so forth having a more powerful reaction on us than positive ones (Verywellmind.com, “What Is the Negativity Bias?”, Kendra Cherry, updated April 29, 2020.). You may have been praised for work you have done or something of the like multiple times, but one snarky remark or hurtful criticism erases all the positive feedback, and a person may dwell on that a lot more than the uplifting comments. Same thing applies in the market. The S&P 500 can average 11.65% annually for 10 years, but are people usually focused on that, or the fact that it is down over 18% currently, over a little under five months? Same goes for the weather, people complain when it is too hot, then it is too cold, too much rain, not enough rain, etc. We are all human and have concerns, whether it is about plans that may be affected by the weather, plans for retirement that may be affected by the market, a financial plan that is being stressed currently by various factors or a total lack of a plan. The important thing to be mindful of is to take inventory of what you have control of and how to mitigate the risks that may arise, so the good times can be enjoyed, and the tumultuous times can be a little less stressful. After all, as there are more sunny days than stormy ones, there are more positive times in the market than negative ones. Written by Leon Bennett, Chief Operating Officer, Majestic Financial, Financial Consultant, RJFS *Any opinions are those of Leon Bennett and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. *The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The average person will have 12 jobs in their lifetime over a span of three to four decades (Zippia.com, May 19, 2021, Chris Kolmar). During this time, a lot can happen in a person’s life. Other than career moves, someone may get married, have children, move residences multiple times, divorce, remarry, inherit money or property, and encounter other serious life events that shape who we are as a person. All these things cost money too. While you cannot plan for some of these things, you could be better prepared by what you are doing beforehand.
One way to be better prepared is to consider consolidating your accounts as you go through life, such as when you change jobs or retire. There are many types of financial accounts. There are taxable accounts such as Single, Joint, and Trust, which are not retirement accounts. There are retirement accounts like Traditional and Roth IRAs (Individual Retirement Account) which the individual manages. These have more options for investments, more strategies available and, ultimately, more control. There are also employer sponsored plans like 401Ks, 403Bs, 457s and SIMPLE IRAs, all depending on where a person works. Not all these accounts should be consolidated into one. For example, when a person retires, they may not want to withdraw their 401K and deposit it into their savings account at their bank, unless they enjoy paying taxes. However, there are many benefits to consolidating accounts as you go through life. When money is invested, it’s usually done with a goal and timeframe in mind; a retirement date, buying a home, paying for grad school, children’s or grandchildren’s education, and so on. When accounts are consolidated, they may be easier to manage and could be implemented into an efficient strategy to reach your goal. For instance, if you plan to retire by a certain date, do you know how much you will need to save by then in order to live life on your terms? Congratulations if you do know this amount because that is the first step. Now that you know that, what is the return you will need from your investments to transform the amount you currently have into the amount required to enjoy retirement and be financially secure? What is the dollar amount you need to contribute on a regular basis to make this happen? If you have multiple accounts at multiple establishments working towards one goal it could be difficult to manage, inefficient and probably more costly. If you do not know the answers to the questions above then there really isn’t a plan, may be more like winging it. The value of a financial advisor is evident in this situation. It is usually in a person’s best interest to have one trusted advisor or team of advisors at one location where everyone is on the same page and knowledgeable of the client’s goals and financial situation. They can give answers to these questions specifically for you and your goals, and that’s just on the planning aspect of financial success. The benefits of consolidating accounts are paramount when it comes to the actual investments and how they are chosen and diversified to seek the returns that are required to reach your goals while also reducing your risk in volatile and precarious times. If you have two 401Ks and three IRAs floating around, all those accounts are supposed to be working to prepare you for retirement and your goals associated with it. But are the individual investments in each of those accounts actually doing that? Are they diversified or are you invested in a lot of the same companies and/or sectors? When money is left in employer sponsored plans after you have left that company there are strategies available that may be a huge benefit to you that are being missed. Some employer plans do not offer Roth options within their plan. When a rollover occurs from a 401K or 403B into a Traditional IRA, it may be beneficial to convert portions each year to a Roth IRA to take advantage of tax-free income in retirement. This must be determined on an individual basis and a person’s tax advisor should be included in the conversation, but it is well worth talking about. Another strategy that many people are not aware of is a 72T. This allows a person to avoid the early withdrawal penalty of 10% tax when a person wants to use their retirement money before they are 59.5 years young. This is extremely helpful for people that want to retire early. At Majestic Financial we take great pride in giving our clients advice and educating them to develop and implement plans and strategies that are in their best interest. It would be prudent to share the following information to align with these priorities. If you've changed jobs or are retiring, rolling over your retirement assets to an IRA can be an excellent solution. It is a non-taxable event when done properly - and gives you access to a wide range of investments and the convenience of having consolidated your savings in a single location. In addition, flexible beneficiary designations may allow for the continued tax-deferred investing of inherited IRA assets. In addition to rolling over your 401(k) to an IRA, there are other options. Here is a brief look at all your options. Be sure to consider all your available options and the applicable fees and features of each option before moving your retirement assets. For additional information and what is suitable for your particular situation, please consult us. 1. Leave money in your former employer's plan, if permitted.
Lastly, consolidating accounts reduces the stress that comes from keeping track of multiple accounts at numerous places. Reducing excessive statements and paperwork, tax reporting and a plethora of calls (sometimes to 800 numbers where the investor is a number and not a person with a family with wants and dreams) goes a long way. Having one source for your financial planning is also helpful as an investor ages. Keeping track of Required Minimum Distributions (RMDs), which start when a person turns 72, is easier when accounts are organized with a trusted financial advisor. Also, when the time comes to pass these accounts and the wealth within them, families are very grateful to talk to one source that knew their family member rather than hunting around for statements and making many calls to make sense of things, especially at an already stressful time for everyone. It could make a lot of sense to consolidate accounts in an organized manner that is designed to optimize the resources that are available. A person’s life savings is a resource that requires responsible stewardship. That stewardship should come from one trusted advisor or a team of advisors that truly have the client’s best interest in mind. Please let Majestic Financial know if you, or someone you care about, have questions about this process or could benefit from a conversation regarding this. Written by Leon Bennett, Chief Operating Officer, Majestic Financial, Financial Consultant, RJFS *Any opinions are those of Leon Bennett and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. *Please be aware that the early distribution penalty tax exception, substantially equal periodic payments, available via Section 72(t) of the Internal Revenue Code, is subject to very specific guidelines, and thus, various factors should be carefully considered. Investors should understand the account value (net equity and/or principal balance) could potentially be exhausted if the distributions exceed the earnings and growth of the investment(s) in the account. Also, the ability to sustain substantially equal payments can be compromised if the account is exposed to higher volatility through higher risk or growth-oriented products. Always consult the advice of an independent tax professional prior to initiating 72(t) substantially equal periodic payments. We hope everyone had a terrific time over the holidays making memories with family and loved ones. Also, we hope people had opportunities to connect with the special people in their lives that they may not have been able to in the recent past. The holidays can be hectic and stressful, and we can often forget the truly meaningful times and traditions that make this time of year what it should be. These times of year can also bring about important conversations. These discussions can be hard and/or uncomfortable, but still extremely important and worth having.
This is a great time of year to reflect on how your financial plan may impact your family in the future. Do you have an estate plan? Do you have a strategy for what happens to your money when you are no longer here? Have you spoken to your loved ones about these things? We don't often like to think about these things, but it is important for you and your family to know exactly how your money gets distributed and spent when you are not here to make these decisions. Do you want an inheritance to go to your grandchildren even if they are young at the time of your death? Or would it be more prudent for you to determine that they get their inheritance at an older age, say 18 years old or even after college? Do you want to help guide how they use your inheritance by stating that you want it to be used for their education or as a down-payment on a home? Are there special charities that you would like to donate to? These are all things that can be laid out in an estate plan. My goal is not to try to explain estate planning and to do a deep dive into the subject in this post. I did not go to law school, and you probably do not have the time to read a compendium on the topic anyway. However, I would like to bring awareness to the importance of having an estate plan. Talk with any financial advisor and they probably have more than one story about a time when an estate plan should have been in place but wasn’t, which caused unnecessary stress, upset, possible turmoil and extra costs. Estate planning has many benefits, some are financial, and some are not. An estate plan can protect young children by possibly selecting a guardian if the parents pass at a young age, protect a person’s wealth from excess taxes and families from arguing amongst themselves. No family thinks the last one will happen to them until it does unfortunately. If an estate plan is in place, these issues can be avoided. Estate planning creates a strategy for either an individual or family that predetermines the transfer of assets in anticipation of death or incapacitation. The goal of an estate plan is to preserve the maximum amount of wealth possible for the beneficiaries while also taking into consideration the best interests and/or wishes of the account owner(s) while they are alive. An "estate" includes assets of money and property, both real estate and personal (for example cars, household items and bank accounts), owned by an individual prior to distribution through a trust or will. Depending on the individual or family, their financial situation, and the intentions they have for their assets, the estate planning process can be anywhere in between simple and very complex, and people should always consult a trusted and qualified estate attorney. There are many aspects that come together in a well thought out estate plan that include not only legal but also tax and cost considerations, both for the person making the estate plan and the beneficiaries. From a 30,000-foot view, an estate plan is created by taking inventory of everything a person or family owns and where it is. This, in itself, is a great exercise and hugely beneficial for people. It still surprises me how many accounts people have in various places for various reasons rather than being consolidated (not to mention the retirement accounts that are left stranded sometimes, and outright forgotten at times). Once inventory has been taken, then it can be determined what goes where when you are unable to make those decisions, either because of death or incapacitation. An estate plan can be implemented through things that most people have heard about such as wills and trusts but there are different types of trusts and certain strategies used within estate planning based on what the individual wants to achieve. Certain options are Revocable vs Irrevocable Trusts, Charitable Trusts (which go deeper with Charitable Lead Trusts vs Charitable Remainder Trusts), Special Needs Trusts and AB Trusts among others. Again, please speak with an estate attorney to explain more about each of these and others that I have not mentioned. The type of trust chosen depends on what the person wants to accomplish, and certain investments are better in some trusts compared to others, which is a perfect example of why a client’s estate attorney, tax advisor and financial advisor should all be part of the conversation. It is obvious that life is not stagnant. Once an estate plan is created, it is paramount to review your estate plan when your circumstances change. Life changes make it necessary to adjust or amend your estate plan. Things change during a lifetime, and we all need to be flexible and adjust, this is certainly no different for your estate plan. One of the biggest mistakes in estate planning that I encounter is when a person has a will or trust made decades ago and thinks everything is in good order without reviewing it. Life is busy and things change, and it can be easy to forget that you have an estate plan to update when very important things in life occur, for better or for worse. When you look back on when that legal document was made compared to when it is needed, what could have changed? A lot. Were people added to the family through birth, adoption, marriage, etc.? Are there people that were included in the estate planning document that are not present anymore due to divorce or death? How many times did that person move since the plan was made? Are there assets still included that shouldn’t be? Has the individual changed their wishes of what goes where? If that person is a business owner or has stake in a business, what has changed in that respect? It is extremely important to keep this aspect of your life current and up to date. Life changes fast and your estate plan should keep up with those changes. Lastly, once these documents are created, please let your loved ones or someone you trust know where they are in case you aren’t around, and the documents need to be used for the exact reason that they exist. Depending on family dynamics, include everyone that you feel needs to be part of the conversation. At Majestic Financial, we feel it is important to work as a team with your estate attorney. This way we can all be on the same page, all for your benefit. We strive to work well with all the professionals in your life to enable you the best probability to reach the goals in your life. Written by Leon Bennett, Chief Operating Officer, Majestic Financial, Financial Consultant, RJFS *Any opinions are those of Leon Bennett and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. When people hear "holistic financial planning," what does that mean? Most people know about retirement planning, preparing a monthly budget, life insurance, and tax returns each year. But most people may not know about how they all work together, and equally important, how do you personally do each part well to positively impact the others? A person can have a great retirement plan and sufficient money in it, but lack of emergency savings could ultimately drain a retirement account when an unexpected health issue arises, or a car breaks down. No one intentionally puts themselves or their family in a tough situation financially. It usually comes down to lack of knowledge due to not being interested, not knowing options, or not knowing that this important information exists. The advantage of having a financial advisor is to put these parts together, to create a plan that prepares you for life’s challenges and to discuss the options that are best for you to reach your goals.
Another professional that I would recommend is a tax advisor or CPA. They play a significant part of financial planning called tax planning. Having your financial advisor and your CPA partner together can improve your tax situation. Your tax situation is affected by your investments and all the other variables that make up your holistic financial plan. Therefore, having a partnership between your CPA and your financial advisor considers your bigger financial goals and ultimately benefits you more. There is information that you should be aware of to improve your tax, and overall, financial picture. This includes: 1) Knowing Your Tax Bracket: Knowing your tax bracket for the year is a good place to start for tax planning. There are seven federal tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The tax bracket you are in depends on your taxable income, which is usually different than your annual salary. There is a calculation involved to determine this number which includes deductions, among other things. A common misconception regarding tax brackets is that your full taxable income is taxed at your tax bracket. Instead, the government divides your taxable income into portions and each portion is taxed at its related rate. 2) Tax Deductions versus Tax Credits: The difference between tax deductions and tax credits could mean a significant difference in taxes you owe, or tax returns you receive. Tax deductions are items that subtract from your taxable income. Tax credits are even more advantageous. They reduce your tax bill dollar for dollar. The best way to understand the difference is to think about how taxes are calculated and the order it is done. First, your Adjusted Gross Income, or AGI, is calculated, then your deductions are subtracted from this. Next, the rest of the tax equation is completed using this number. Tax credits, on the other hand, are subtracted last, usually resulting in a bigger reduction from your tax bill. 3) Standard versus Itemized Deductions: Regarding the difference between standard and itemized deductions, this is fairly straightforward and depends on the person and, often, their occupation. Standard deductions are a dollar amount that is set for each tax bracket and is adjusted each year for inflation. This amount is subtracted from your AGI as previously discussed. Itemized deductions consist of adding up each individual tax deduction for which you qualify. The trick is knowing which deductions you qualify for and keeping accurate and organized records of it to prove it. If these deductions are greater than the standard deduction you qualify for, then itemizing may be a better option for you. There are strategies available to make this an attractive option for some people, namely the self-employed. As with most important decisions, knowing your options is paramount. Knowing useful tax deductions and credits falls into this category. There are lists available to reference but some of the commonly known ones are: adoption, capital losses, charitable contributions, child tax credits, credit for the elderly or disabled, home office expenses, mortgage interest, medical expenses, property taxes, residential energy tax credits, and saver's credit. Using a tax advisor or CPA is extremely helpful in compiling this information specific to your situation. 4) Knowing Strategies Specific to Your Situation: The first strategy that can apply specifically to you is adjusting your W-4. The W-4 tells your employer how much tax to withhold from your paycheck. Depending on certain variables and previous tax bills, you may want to increase or reduce your withholding. This can be adjusted throughout the year. Contributing into a 401K, if it is offered to you, is another way to reduce your taxable income. For 2021, $19,500 is the limit for yearly contributions to these accounts and if you are 50 or older you can contribute up to $26,000. Contributing to an IRA can allow for tax deductions for certain eligible people. Six thousand dollars is the maximum amount for IRA accounts with $7,000 permissible to those 50 and older. Contributing to a Flexible Spending Account (FSA) or Health Savings Account (HSA) may also be beneficial for reducing taxable income depending on your unique situation. As with most things in life, a successful holistic and comprehensive financial plan relies on multiple components working together well. A financial plan can be thought of as an orchestra or sports team. There are roles for each investment and financial aspect of your life, and they must all be coordinated to best serve your ultimate financial goals. Tax planning is one important part of your holistic financial plan. It is important to know specific things about it that benefit your taxes and what to do about it. Tax planning doesn't take place only during tax season. Items you and your financial advisor can be aware of during the entire year include tax loss harvesting and capital gains being passed down by investments to investors, namely mutual funds. Being cognizant of what you can do throughout the year to improve your tax situation will ultimately benefit you and your loved ones in the immediate future and potentially for generations to come. Please let us know how we at Majestic Financial can help you or someone you care about. Written by Leon Bennett, Chief Operating Officer, Majestic Financial, Financial Consultant, RJFS *Any opinions are those of Leon Bennett and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Change happens. But these days it seems to be happening more.
Does your financial plan have you prepared for these potential changes in your life? Do you have a trusted advisor who you can turn to when change happens? At Majestic Financial, we understand that as you progress through life, your situation can change in many ways. Priorities change with each chapter of your life. Needs, wants, and wishes change as well. Others’ needs, wants, and wishes sometimes replace your own. At Majestic, we take a holistic approach to financial planning, from knowing your exact financial needs and future wants, to advising you in all "what if scenarios". For example, you plan on retiring in five years but suddenly get laid off. What is your best strategy moving forward that still lets you reach your retirement goals? Your adult child needs sudden help with major health care bills. Are you prepared? You want to be able to support your grandchild who fell on hard times after college. How do you do this while still allowing your assets to cover the retirement you desire. These are just some situations in which it pays to both have a comprehensive financial plan and a group you can trust. We help clients reach their goals by developing plans specifically for them and their situation. There is no one size fits all when it comes to investing. Everyone is different with unique goals, tolerances to risk, income levels, debts and various other ingredients that make up not only your financial picture but life situation as well. When we develop a plan, we discuss the financial numbers in your life, and even more importantly, we want to know about you personally, your family, goals and what is important to you. When we partner together to work in this way, a financial plan is no longer just a plan, it comes alive and can adapt with you as you experience inevitable changes. This hopefully makes the plan a lot more successful and the unexpected a lot less stressful. Change is inevitable in life. Life is not stagnant. We help you become aware of possible life changes that you will go through on your journey so you can be prepared and understand the options available to you to best navigate these situations. These changes could very well be opportunities. Written by Leon Bennett, Chief Operating Officer, Majestic Financial, Financial Consultant, RJFS *Any opinions are those of Leon Bennett and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Who remembers investing class in school? When did you learn exactly how much is adequate for you to have in emergency savings or the ideal amount you personally should invest in your retirement plan to pay for the life you dreamed of?
If you have answers to these questions, I am happy for you and very impressed. You are in the minority. Also, please let me know where you went to school because I wasn't aware investing class existed unless you were in a program to join my industry. The truth is that most people, if they are lucky, get this information from a caring parent telling them the importance of starting contributions to their work plan - "You'll never miss it" - or when they decide the time is right to seek professional advice. The unlucky find advice from conversations at the water cooler or, worse yet, from the internet which may not be as horrible as I am making sound, but I am certain this information is rarely personalized, which can be downright dangerous, especially with someone's life savings. All clients have heard me say "there is no one size fits all when it comes to investing or financial planning." No two people (or families or institutions or businesses) have the same tolerance to risk, goals in life, income, debt or any number of other variables that are needed to be taken into consideration when providing responsible financial advice. What do you want for yourself, your loved ones, business, legacy and/or charity in the future? When do you want it? Achieving your goals starts with a conversation that focuses on the answers to these questions and what is important to you. Please let us know if you want to learn more about our process, team and approach to help you be the best steward for the wealth you have or are building. Written by Leon Bennett, Chief Operating Officer, Majestic Financial, Financial Consultant, RJFS *Any opinions are those of Leon Bennett and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. It's finally time for the official launch of Majestic Financial! Woohoo!!!
I know a lot of people out there have had the opportunity to start their own business but if you haven't, it's A LOT of work let me tell you 😅 The past two months have been pretty chaotic for the Majestic team but we survived and we're so excited to finally be able to share this new journey with all of you! We have been working on everything from creating our own name and logo, to purchasing and renovating an office building in downtown Plainwell, MI. Some of you already know our two amazing financial consultants but for those who don't, let me introduce Sean Budlong and Brandon Wilkins! Sean was previously an advisor with Edward Jones for 10 years and was located in Schoolcraft, MI. He's been living in Plainwell with his wife Laurie for over 20 years now and has raised two children, Josh and Jessica. Sean loves to get involved with the community and has helped fund the Schoolcraft Theatre Department, been an assistant coach for the Otsego JV baseball team, and has coached many different teams at Northwood Plainwell Little League over his years in Plainwell. Sean is excited for the new office in downtown Plainwell and looks forward to making a positive impact in the community once again. Brandon was previously an advisor with Edward Jones for eight years and was located in Hastings, MI. He has enjoyed living with his wife Leanne and raising their son Isiah in Middleville, MI, and is excited to become an honorary member of the Plainwell community. Brandon used to dominate the baseball diamond back in high school at Gull Lake but his main sport is Tang Soo Do where he's a 7th degree black belt. Brandon has shared his love of martial arts by teaching kids and adults of all ages over the years and even met his wife in the dojo. Brandon is eager to start this new adventure and meet all the wonderful people and businesses that make Plainwell the beautiful city it is. Sean and Brandon have decided to leave Edward Jones and create Majestic Financial so they can better serve their clients. It wasn't an easy choice to make but they believe they will have more freedom to cater to client's wants and needs with their own brand and with Raymond James resources behind them. On behalf of Sean, Brandon, and the rest of the Majestic Financial team, thank you for visiting our website and we hope to see you soon (socially distanced of course)!! |
This blog is a collective effort from the Majestic consultant trio, Sean Budlong, Brandon Wilkins, and Leon Bennett.
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November 2023
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Majestic Financial
220 South Main Street, PO Box 322, Plainwell, MI 49080
307 E Green Street, Hastings, MI 49058
(269) 443-2160
220 South Main Street, PO Box 322, Plainwell, MI 49080
307 E Green Street, Hastings, MI 49058
(269) 443-2160
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© 2021 Securities offered through Raymond James Financial Services, Inc., member FINRA / SIPC | Legal Disclosures | Privacy, Security & Account Protection | Terms of Use
Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.
Investment advisory services offered through Raymond James Financial Services Advisors, Inc.. Majestic Financial is not a registered broker/dealer and is independent of Raymond James Financial Services.
© 2021 Securities offered through Raymond James Financial Services, Inc., member FINRA / SIPC | Legal Disclosures | Privacy, Security & Account Protection | Terms of Use
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